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Title:Can insider power affect employment? PDF Logo
Authors:Díaz-Vázquez, Pilar
Snower, Dennis J.
Issue Date:2002
Series/Report no.:IZA Discussion paper series 506
Abstract:Do firms reduce employment when their insiders (established, incumbent employees) claim higher wages? The conventional answer in the theoretical literature is that insider power has no influence on employment, provided that the newly hired employees (entrants) receive their reservation wages. The reason given is that an increase in insider wages gives rise to a counterveiling fall in reservation wages, leaving the present value of wage costs unchanged. Our analysis contradicts this conventional answer. We show that, in the context of a stochastic model of the labor market, an increase in insider wages promotes firming in recessions, while leaving hiring in booms unchanged. Thereby insider power reduces average employment.
Subjects:insider power
employment
labor demand
wage differentials
JEL:J42
J64
E24
J23
J31
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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